Tuesday — April 9, 2019 — Special Issue No. 851

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THE COMING REGULATORY WAR OVER 5G

Edward M. Roche, Esq.* Benjamin H. Dickens, Jr, Esq.

L. Walker Townes

July 2017

ABSTRACT

“5G” is a new generation of wireless telecommunications technology that promises to revolutionize how the world communicates. Everything from autonomous vehicles, robots conducting delicate surgery, virtual and augmented reality devices, drones, the “Internet of Things” (IoT), and generally all mobile communications will be enabled by a new tranche of bandwidth between 6-Ghz and 300-Ghz, some of it licensed, but much of it not. But 5G is different. For the first time, the physical infrastructure will be separated from the logical or “virtual” infrastructure. Software Defined Networks (SDN) will be set up and torn down, grown and lessened according to demand. Complex network management will be done by Machine Learning (ML) and Artificial Intelligence (AI). But for all of this to work properly, major carriers will need to accept international standards and open up their interfaces to outsiders. And this is where the regulatory and legal fight will come into the picture. Unless sufficient attention is paid now to these emerging issues, the United States will be ill-prepared to enjoy the full range of benefits promised by 5G, and as a consequence innovation will lag behind other regions of the world.

 


* Law Offices of Edward M. Roche, 100 Pine Street, Suite 1250, San Francisco, CA 94111-5235
Partner, Blooston, Mordkofsky, Dickens, Duffy & Prendergast, LLP
Board of Directors, Townes Telecommunications


TABLE OF CONTENTS

INTRODUCTION

A. New Applications

I. THE TECHNOLOGIES OF 5G

A. Use of Millimeter Wave Frequencies

1. Water and Oxygen Absorption

2. Inability to Penetrate

B. Mini-Cells and Reuse of Spectrum

C. Intelligent Antennas – MIMO and Beam Shaping

D. Frequency Hopping and “Multi-Mode” Communications

1. Hopping

2. Multi-Mode

E. The New Architecture of 5G

1. Separation of Infrastructure from Network Services

2. Software-Defined Networks (SDNs)

F. Network Distributed Artificial Intelligence (NDAI)

1. Modular and Open Source

II. REGULATORY ISSUES FOR 5G

A. Sharing of Infrastructure

1. Forced Sharing

2. Forced Access to Network Control

B. Cost Sharing and Billing

C. Open Systems and Open Innovation

III. PARALLELS WITH EARLIER DEREGULATION BATTLES

A. The Competitive Telecommunications Market in the United States

1. Kingsbury

2. 1956 Consent Decree

3. Hush-a-Phone

4. Carterfone

5. Execunet I & II

a. Execunet I

b. Execunet II

B. Breaking Up AT&T

C. Deregulation and the Telecommunications Act of 1996

IV. CHALLENGES FOR SMALLER CARRIERS

A. The Townes Test

CONCLULSION


INTRODUCTION

The next generation of mobile wireless technology will be called “5G”. From the name, it appears to be a continuation of previous generations of mobile telephony. The first generation (“1G”) of mobile telephones, “Car phones” started in approximately 1980. Introduced by Motorola, these phones operated as radios and used their frequencies in analogue mode. In the early 1990s, the second generation (“2G”) telephones were introduced. There was a transition to digital networking. The data rates for these phones was much less than 1,000 bits per second (bps). By the year 2000, a “2.5G” technology was introduced boasting significant performance improvements. Soon after, third generation (“3G”) phones were introduced. By then, data speeds had increased to between 10 and 100 thousand bps. This was a considerable improvement, as it was capable of transmitting limited video calls, and providing reasonable speeds for connectivity to the Internet. Improvements in digital coding of communication led to the introduction of “3.5G” in approximately 2009, and by 2012, introduction of the “3.9G” standard. By 2015, only a few years ago, the fourth generation (“4G”) standard was introduced, with a data speeds ten times higher.

Following the switch to cellular networks in the early 1990s, mobile telephony has been based on a predictable model. That is, carriers would build out their networks, and sell mobile services under contract to consumers. It was important to “lock in” the consumer, and in the United States, this was accomplished by subsidizing the purchase of the mobile telephone in exchange for the consumer signing on to a lengthy contract.

Since users were indeed mobile, inter-carrier arrangements were made allowing them to “roam” onto the networks of other carriers, usually for an extra fee. Although they stubbornly remain in the United States, across the European Community, roaming fees were eliminated in 2017,1 as part of its Single Digital Market Strategy.2

Although it has a similar name, in fact 5G is not an incremental upgrade from previous generations of telecommunications. Instead, it is a disruptive innovation3 that will revolutionize telecommunications and present ample opportunity for radical changes in business models surrounding carriers.

A. New Applications

The new 5G architecture will make possible a number of new applications.4 It will be possible to enjoy “pervasive” video delivered wirelessly even in very dense areas such as a large sports event where every spectator is using a connected device. Broadband access is promised to average 50 Mbps or more in any location, even in rural communities. Users on transportation systems, such as high-speed trains, busses or other moving platforms also will be able to enjoy these high speeds. The Internet-of-Things (IoT) will connect together billions of devices and sensors. The latency (delay) of data in 5G networks will be only 1 millisecond (ms) or so, compared to 50 ms in current systems. This is important because minimized latency will make possible almost real-time communications, such as between driverless vehicles moving in tandem at relatively high speeds, or for applied virtual reality.5 Drones will use 5G for navigation, including scenarios in which it is necessary for authorities to respond to natural disaster. 5G promises communications reliable enough to be used in health-care, including for linking together doctors with remote surgical robots deployed to assist emergency patients. The number of potential applications is astoundingly great, all made possible by the very high speed of “millimeter wavelengths” (mmWaves), and their response time. It is estimated that within a few years, tens of billions of devices will be connected.6

I. THE TECHNOLOGIES OF 5G

In order to appreciate how 5G will change the landscape of telecommunications, it is necessary to examine the technologies that make up its foundation.

Several key technologies distinguish 5G from its predecessors. These are (1) use of higher frequencies (“mmWaves”); (2) re-use of spectrum; (3) deployment of a new generation of intelligent antennas; (4) the deployment of “virtual” software-defined networks (SDNs); (5) use of Artificial Intelligence; as well as (6) a modular and open source architecture. Below, these terms will be defined and discussed briefly.

A. Use of Millimeter Wave Frequencies

The most distinguishing feature of 5G is its use of very high frequencies. In the United States, the overwhelming majority of communication systems work at frequencies below 3 Gigahertz (GHz). For 5G, however, there are 5 bands that will be used; four unlicensed, one licensed. In particular, the licensed LMDS7 band offers approximately 1.5 GHz bandwidth between 27.5–31.5 GHz. There is a second band of 7 GHz that will operate in the 57–64 GHz range. This band already is being used in some Wi-Fi equipment under the IEEE 802.11ad standard. Finally, the “E-Band” is composed of three segments of bandwidth totaling 12.9 GHz, and also is unlicensed.

The distinguishing feature of these high-frequency bands is their speed. With proper coding of the radio signals, 5G speeds will be several thousand times faster than previous generations of mobile telephony. These bands represent almost the equivalent bandwidth of the entire allocated radio spectrum below 5 GHz.

Although using such short wavelengths makes it possible to obtain very high speeds, they present several unique technical challenges, and these in turn will drive the underlying architecture that must be built in order to support their use.

1. Water and Oxygen Absorption

These high frequencies are vulnerable to being absorbed by water moisture in the air, and at some frequencies by oxygen. The 22 and 183 GHz frequencies are vulnerable to being absorbed by water. The 60 and 118 GHz frequencies are vulnerable to absorption by oxygen itself.8 In other words, if it is raining, mobile communications using 5G frequencies might be interrupted or degraded.9

2. Inability to Penetrate

These high frequency waves (“mmWaves”) also lack the ability to penetrate the walls of buildings, or even to get through dense vegetation, such as a forest, or even a row of trees. As a consequence, if the current physical infrastructure of 3G/4G were simply reused for 5G, nothing would work because mmWaves have a much more restricted range of propagation. In practical terms, the distance between the antenna and the receiver, between the cell tower and the mobile device, must be greatly reduced.

These weaknesses in turn drive the architecture of the 5G infrastructure and network, and as we shall see, this new architecture also sets the context for propagation of new business models, not only for consumers, but for carriers as well.

B. Mini-Cells and Reuse of Spectrum

As mentioned, in order to cope with the smaller propagation distance of mmWaves, the distances between antennas and mobile devices (“User Equipment”) must be dramatically reduced. For example, if in the normal world of 4G cellular telephony, a single antenna tower can cover an area of several square miles or more, with mmWaves, the same tower might be able to cover only a city block or less.

In addition, the inability to penetrate walls means that if one needs a 5G network inside a building, then a self-sufficient antenna “cell” must be installed. For example, if 5G mmWaves were to be used to connect together robots working inside an automated warehouse, then a separate 5G network would be put in dedicated to this single application.10

The immediate effect of this limitation would appear to be a dramatic reduction in the cost-effectiveness of 5G networks because the number of antennas must be dramatically increased. This limitation, however, is mitigated because the weak propagation of mmWaves opens up an opportunity to re-use spectrum. For example, if one building has installed internally a dedicated 5G network, then a building next door also could have its own network, even though it would be using the same frequency. So the economies lost by the requirement to install many extra antennas is compensated for by the ability to re-use bandwidth. We can say that instead of having a single large cell in an area, with use of mmWaves, it will be possible to have dozens or even hundreds of separate cells, all using the same frequencies.

This characteristic of mmWave networks is crucial because it has the effect of maximizing the re-use of spectrum. In practical terms, re-use of licensed spectrum is like printing money—it greatly increases the value of the spectrum, simply because the amount of traffic being carried can be so much greater. This characteristic of mmWave networks combined with their inherent high capacity, suggests that the value of this bandwidth should be hundreds of times higher than comparable licensed bands at lower wavelengths.

C. Intelligent Antennas – MIMO and Beam Shaping

The emerging 5G architecture also allows re-use of bandwidth from the antenna tower. In previous generations of mobile radio technology (1G–4G), any emitted signal is propagated 360° in all directions. In the 5G world, “Massive Multiple-Input Multiple-Output” (MIMO) technology is used.

Instead of having a single large antenna, MIMO has a number of small antennas with each pointing in a different direction,11 thus increasing the number of antennas available by more than twenty-seven times. Because MIMO antennas are highly directional, they can transmit the same frequencies being used by adjoining antennas.

In addition, since a frequency band typically is broken down into a number of different “slices”, this further will increase the number of separate channels that can be supplied (because not only can the same frequency be used in different directions, but the antennas can use multiple frequencies at the same time).

Finally, there is a technology called beam shaping which refers to the ability of the new generation 5G antennas to focus their radio beams towards specific locations. It should be noted that the ability to focus radio beams assumes that the antenna system itself is able to identify the location of any connected User Equipment (UE). This location detection feature of MIMO and beam-shaping is another aspect of 5G infrastructure technology that very much distinguishes it from previous generations (1G–4G).

There is an economic impact of these new technologies. Entities that purchased LMDS licenses intending to use them for their original purpose (point-to-point microwave transmission) should reap a windfall because 5G promises to greatly magnify their value. Already this has been reflected in recent auctions for licensed 5G spectrum before the Federal Communications Commission (FCC).

D. Frequency Hopping and “Multi-Mode” Communications

Another innovative aspect of the new 5G architecture is the bleed-over between licensed and unlicensed spectrum. In the United States, only the LMDS band between 27.5 and 31.5 GHz is licensed.12 This accounts for approximately 1.5 GHz available bandwidth. But there are at least four other bands allocated for 5G. These are much larger than the licensed LMDS band. The E-Band is composed of 12.9 GHz operating at 71–76, 81–86, and 92–95 GHz. There is another band of 7 GHz operating at 57–64 GHz.

1. Hopping

So out of a total bandwidth of 21.5 GHz allocated to 5G in the United States, only 1.5 GHz, a little less than 7% is licensed. Since unlicensed frequencies are notoriously congested, the 5G architecture is being designed so that instead of remaining tied to a single frequency band, the new radio access technology (RAT) will have the capability of jumping from one frequency to another as needed. In this way, data traffic always will be moving along the least-congested pathway.

This implies that some traffic moving along on licensed spectrum can if necessary jump onto unlicensed frequencies. It is not clear, however, if circuits operating on unlicensed frequencies will be able to jump onto licensed frequencies, even on a temporary basis.13

The addition of a sophisticated and technically complicated capability such as frequency hopping again emphasizes the different nature of the 5G world. Here, the network must be able constantly to sense which frequencies are being under-utilized. This type of capability never would be required if only a stable licensed and dedicated bandwidth were being used.

2. Multi-Mode

The 5G architecture also is being designed to leverage bandwidth that is completely outside of its allocation and substantially slower. For example, it is envisaged that at the same time 5G frequencies are being used, User Equipment (UE) potentially could be accessing the 4G network as well as Wi-Fi.14 In essence, allocation of bandwidth and speed dynamically can be adjusted to the type of application being used, e.g., fast for 4K video, slow for passive sensors.15

Yet again, the capacity to leverage multiple networks simultaneously presupposes a type of sophistication and complexity to 5G that never before has been seen in telecommunications. As we will discuss in Section II, this may raise legal and regulatory issues if those heterogeneous networks being leveraged through the 5G architecture are owned by different entities.

E. The New Architecture of 5G

Because of the massive amount of new bandwidth being made available, the projected extreme growth in the number of connected devices, the wide range of applications to be supported, and the different quality-of-service (QoS) characteristics of different uses, the 5G architecture is being designed in a way never seen before.16 Some of the principle differences between the architecture of 5G and its predecessors include:

1. Separation of Infrastructure from Network Services

In the 5G world, different network infrastructure systems such as towers, antennas, the Radio Access Networks (RANs), various access nodes feeding the RANs, the core networks, as well as data centers that may supply cloud services to User Equipment (UE) are separated into a “Physical Resources” layer. As a consequence, there is no underlying assumption that the physical infrastructure will be owned or operated by the same entity. Instead, these computational, storage and connectivity resources are considered to be “logical—virtual resources” that can be harnessed as needed according to higher-level management functions in the 5G architecture.

2. Software-Defined Networks (SDNs)

Provisioning of network services will be done through a “virtual” network system that will translate user requirements into instructions that will be used by “virtual infrastructure managers” to harness as needed the relevant parts of the physical infrastructure. Since this is, in effect, a complete separation of provisioning from its relationship with the infrastructure, the network itself becomes a type of abstract concept.

Networks, in today’s sense of the term, will cease to exist. They will be replaced by “slices” of the larger 5G network ecology. Some slices may include only mmWave transmission; others might integrate together 4G for slower performance, and switch to mmWave speeds only for selected applications. These slices will be partitioned from each other, have separate capabilities, and respond to different performance criteria. They will actually be “networks within the network”.

F. Network Distributed Artificial Intelligence (NDAI)

There are a large number of management functions that by necessity will be an integral part of 5G. The infrastructure must constantly be monitored to ensure efficient operation, fault management must be in place, configuration management must be programmed to work properly, and performance management will be crucial in ensuring that applications receive the proper prioritization.

The unique aspect of the 5G architecture is that these higher-level network functions also will operate separately from the physical infrastructure actually carrying the data traffic.

Artificial intelligence will be required to manage this complex architecture because humans would be incapable of making the flood of simultaneous decisions required for allocation of physical infrastructure, switching of channels depending on demand and application, monitoring of network performance, providing security, and responding appropriately to outages or other network failures.

1. Modular and Open Source

These many different functions in the 5G schema are modular in nature, and many are open source.17 In this approach, when it is time to provision a network, there will be not one, but multiple entry points into the system. Performance metrics and network management will not necessarily be performed by the same application or supplied by the same vendor. Rather than traditional telecommunications carrier acting as an intermediary between provisioning of the physical infrastructure and the customer, instead it will be possible for customers to directly requisition virtual network resources. In addition, the separation of physical infrastructure means that it will not even be necessary to understand the details of the network, only to specify the requirements.

In other words, the 5G architecture will be the exact opposite of “closed” or “proprietary”. It will allow multiple actors to interact and either consume or provide a number of services. Indeed, this is a very different philosophy than what we have seen in the past. Yes, since 5G embodies a completely different concept of what a “network” is, we cannot be sure how U.S. operators will respond.

II. REGULATORY ISSUES FOR 5G

In the previous discussion, we have described the emerging nature of 5G and shown how the unique characteristics of these higher frequencies have forced a complete re-thinking of how mobile networks are going to operate and be managed in the future. It appears, however, that this new architecture will raise a number of questions of a regulatory nature.

A. Sharing of Infrastructure

The 5G architecture assumes that physical infrastructure will be shared by the higher-level network provisioning system. This would mean that a “virtual” or Software-Defined Network would be set up without regard to which company was providing the transport.

1. Forced Sharing

Will physical infrastructure providers, including the major carriers, be forced to share their infrastructure as needed? If so, then how will pricing be determined? What implications do forced sharing policies suggest for the concept of property? Are there precedents where companies are forced to share their infrastructure? Do all carriers or network suppliers have a “right” to access all of the available infrastructure? Should they have this right?

2. Forced Access to Network Control

Up to this point in telecommunications history, each major carrier has owned, operated and maintained its own network control center. In a sense, this centralized network control was the essence of carrier autonomy over its provisioning and business models.

But if the emerging 5G architecture is adopted, then this autonomy will go away because all potential users, including perhaps competitors, will be empowered to provision “virtual” networks. Under the current proposed designs, network operators may no longer be necessary since large users (e.g., multinational enterprises, governments) may have direct access to the 5G “Multi-Service Platform”.

Will those who build the major part of the 5G platform retain the right to control who might use it, or to otherwise set the terms of access in a way that is favorable only to themselves?

B. Cost Sharing and Billing

If virtual networks will rapidly come and go, be built-up and then torn-down, then how will pricing be determined? Will it be regulated? If not, then will it be arranged in a way that is completely open market? How will prices be measured and monitored? If the service being accessed is from a “physical infrastructure” provider, then how will prices be set? What is to stop abusive price gouging, or major carriers beating down the prices to below their cost? Are all services going to be priced equally? For example, if 4G services are integrated with 5G mmWave applications, then will pricing be the same as if either mmWave or 4G were priced separately?

C. Open Systems and Open Innovation

Will regulations be put into place that will ensure a continued stream of innovation? Suppose a start-up creates a completely new type of billing system, is the infrastructure provider going to be compelled by regulation to open up access to their system? Will users be forced into using only the set of modules that are being bundled by their provider, or will they be able to “mix and match” modules from different suppliers so as to best meet their priorities?

III. PARALLELS WITH EARLIER DEREGULATION BATTLES

Although the new and emerging 5G architecture presents with many thorny issues of regulation, the break-up of the Bell System in the United States and much of the deregulation that followed has set in place a liberalizing framework that can set a context for 5G.

A. The Competitive Telecommunications Market in the United States

The United States over time has developed a competitive model of telecommunications. This competitive model is based on open access to the infrastructure of the telecommunications network by different companies, including competitors. For example, in any telecommunications network, it is possible to use equipment from any manufacturer. The only requirement is that it is certified by the Federal Communications Commission. It also is possible to make a choice between different local service companies. Even the underlying logic of a tariffed service has been challenged by a liberal policy that allows making telephone calls from one’s computer. Finally, competing telecommunications companies are forced to cooperate with each other to provide “number portability”, the ability to retain one’s telephone number even when moving from one carrier to another.

These features of today’s networks are by no means self-evident or automatic. They are the result of a long struggle between two opposing forces: Monopoly v. Regulation. The monopoly power of dominant technology companies, and the regulatory power of the Federal Government, and various states. This “battle” has lasted for decades, beginning in the 19th century.

1. Kingsbury

One of the first skirmishes in this battle was a disagreement over AT&T’s control over both telegraph and telephone service. In the Kingsbury commitment18, the Chairman of AT&T agreed to abandon (“divest”) the investments it had been making in local telegraph companies.19 In addition, AT&T agreed to allow independent telephone companies to interconnect with its long distance network. This was a very exciting time for telecommunications in the United States. Many telegraph and telephone companies were being created, but this wave of innovation was being throttled by the persistence of AT&T in acquiring controlling interests in one company after another.

Even at the time, there were arguments against interference with the market. Theodore N. Vail, the Chairman of AT&T preferred “one policy, and one system able to provide universal service”. As the market in telephony grew, AT&T continued to consolidate its market power eventually controlling almost all fixed20 telephone lines in the United States. AT&T also owned twenty-two (22) companies providing local services. These were called Bell Operating Companies (“BOCs”). AT&T manufactured all of its telecommunication equipment in their own factories “Western Electric.” It operated a single long-distance company for the entire country “AT&T Long Lines”. Other fixed-line companies21 and cooperatives operated in their own geographical areas, but only Western Electric manufactured equipment was allowed to be connected with the AT&T network.22 AT&T even had its own railroad. The level of integration of the telecommunications market was complete.

2. 1956 Consent Decree

By the mid-1940s, the government was receiving complaints that AT&T and its manufacturing arm Western Electric were engaged in a “conspiracy” to monopolize the market for telecommunications equipment, including manufacturing and sales. In 1949, the U.S. government filed a lawsuit against AT&T and Western Electric. In the suit, it demanded that the manufacturing arm, Western Electric be separated from AT&T. The result was the “1956 Consent Decree” in which AT&T promised to keep its businesses within regulated areas. Again, AT&T avoided a lengthy court battle, but the practical effect on the market for telecommunications was insignificant. AT&T continued to go about its work, and the record shows the persistence of a number of anti-competitive activities.

3. Hush-a-Phone

The Hush-A-Phone case23 marked one of the first cracks in the unified and impenetrable network that had been built by AT&T. The Hush-a-Phone was such a simple device. It had no electric circuitry at all. It was merely a small cup-like object that could be mounted to the microphone on a telephone. It was capable of increasing the quality of sound transmitted to the party listening, and it also enabled one to keep their conversations confidential. At this time, telephones were not owned by the customer, but instead were leased from AT&T. It was claimed that AT&T had the right to “forbid attachment to the telephone of any device not furnished by the telephone company.” At first the FCC agreed, and with reference to the 1934 communications act held that the Hush-a-Phone was a “foreign attachment” that could be controlled by AT&T with a view to preventing the deterioration of telephone service. Hush-a-Phone then went to the Federal Court of Appeals in Washington, DC and won. The court ruled that placing a tariff on the Hush-a-Phone device was unwarranted interference with a telephone subscriber’s right to reasonably use the telephone in ways which are privately beneficial without being publicly detrimental.

The rule had been established that AT&T could not prohibit an interconnection (of equipment) that is beneficial in a particular sense, as long as it does not damage the public network.

4. Carterfone

The Carterfone case is another example of anti-competitive activities by AT&T. The Carterfone was a device connected to a two-way radio. If one placed the hand-set of the telephone onto the Carterfone, it became possible for the conversation to utilize a radio-communications link. AT&T argued that the device was prohibited because of its uniquely regulated rate structure. The inventor first sued in Federal Court under the anti-monopoly laws, but the case was referred to the Federal Communications Commission, which ruled that the Hush-a-Phone rule should be followed, thus allowing this interconnection.24

5. Execunet I & II

Microwave Communications, Inc. (“MCI”) was building a series of microwave relay stations between Chicago, Illinois and St. Louis, Missouri. The original plan was to provide a way for truckers using limited-distance radios along Route 66 to communicate to local microwave towers. The service was called “Execunet”. Eventually, MCI applied to interconnect its network with AT&T. This would allow its customers to originate and receive telephone calls with fixed-line customers.

a. Execunet I

AT&T refused to allow the interconnection, arguing (again) that it would interfere with it rate structure. MCI filed a suit before the Federal Communications Commission but lost. It then appealed to the Federal Court of Appeals in Washington, DC which reversed the decision of the FCC.

b. Execunet II

Despite the court ruling, AT&T continued to refuse interconnection between its network ant MCI. Again, MCI appealed to the Federal Court of Appeals25 and again the court ruled in favor of MCI, this time using arguments based on anti-trust law.

After this, AT&T allowed interconnection. But the implications were tremendous. This ruling, in effect, opened up competition against AT&T’s Long Lines. From this small ruling, MCI was grown into a giant.

B. Breaking Up AT&T

In the mid-1970s, AT&T was the largest company in the world, and had more employees in the US than any other company. The U.S. Department of Justice filed another lawsuit26 against AT&T. The suit alleged continued anti-competitive behavior by AT&T. Examples included the use of its monopoly power to kill off a company, controlling access to the Bell Operating Companies (BOCs) in a way that blocked competition in the long-distance market, and using revenues from its fixed-line business to gain advantages in competitive markets including manufacturing and long-distance. The Bell Operating Companies (BOCs) held monopolies in their local markets, and this, according to the government, by extension was the source of the monopoly power of AT&T.

The legal battle went on for almost a decade, but in 1982 AT&T threw in the towel and decided to negotiate an agreement with the government. AT&T was separated from the BOCs, which in turn were reorganized into seven (7) holding companies, which were required to provide “multi-carrier” service, and allow interconnection to all long-distance companies. The BOCs were prohibited from offering long-distance service in their markets until they faced competition. The fixed contracts between the BOCs and Western Electric for the purchase of equipment were made null and void. AT&T was prohibited from purchasing shares in any BOC. This “break-up” came into effect on January 1, 1984.

C. Deregulation and the Telecommunications Act of 1996

It can be argued that the effect on the market of the “Break-Up” was salutary. The market as a whole and number of long distance providers grew rapidly. An intermediary industry was established, providing access services that could directly link long-distance providers and businesses (e.g., a bank wishing long distance with lower prices).27 There also was explosive growth in wireless services.

Still tensions remained. In particular, the various Regional Bell Operating Companies (RBOCs) were eager to offer information services28 that were off-limits because of a fear that their local monopoly power could be used to stifle competition in new emerging “information age” sectors.

These marketplace pressures as well as a general recognition of a need for reform led to adoption of the Telecommunications Act of 1996.29 This represented a historical change in telecommunications law, the first since 1934.

This new law has had a powerful effect on competition in telecommunications. First, the restrictions that had been in place against RBOCs in the “Breakup” Agreement were eliminated. Second, the state laws protecting titleholders against local competition were canceled. This led to an immediate merger between the seven (7) RBOCs. When the smoke cleared only three powerful companies remained: Verizon, AT&T and Qwest. Three of the four long distance companies having a national network were acquired by the RBOCs.

The wireless service market in the United States has come to be dominated by AT&T and Verizon which together control more than 60% of the mobile market. Only four (4) companies, including AT&T and Verizon, have 90% of the mobile market. In most markets, the fixed telephony market has become a duopoly or oligopoly.

In the Internet world, there was much discussion of “Net Neutrality”, but this too seems to have faded, leaving room for more entrenchment of dominant players in the market.

IV. CHALLENGES FOR SMALLER CARRIERS

Smaller carriers must ensure that the daunting challenge posed by 5G does not leave them locked out of the market. History shows that when a market is characterized by entrenched players enjoying comfortable market shares there is less incentive to innovate. The top providers, Verizon and AT&T account for approximately $120-Billion/Year in revenues. When the third and fourth largest players T-Mobile and Sprint are added in, these four companies have sales of around $170-Billion/Year. The fifth largest carrier, US Cellular is 10% the size of Sprint which is the smallest of the top 4. Apart from the giants, the rest have revenues that are only a fraction of the top five. Over time, an ecology has developed in which the bulk of investment in build-out is made by the large players. When they lease infrastructure, these companies tend to drive hard bargains with smaller providers.

Although there is wide recognition that 5G technology is a revolutionary service, teeming with opportunities for innovation, nevertheless we can be sure that the major players will dominate the standard-setting contest in the ITU and will design first an infrastructure that works for their own purposes but is not necessarily open to participation of outsiders. Naturally, there will be reluctance to open up the 5G architecture and network control to competitors, and the compelling argument for this will be the need to recapture some of the substantial investment they have made.

The promise is that as a disruptive technology, 5G is presents many new possibilities for innovation. For the smaller players, this new architecture should make it possible for the first time to provision telecommunication services independently of the underlying infrastructure. For smaller players to be given this capability is a mirror image of what happens when the giant providers utilize the leased infrastructure of others to extend their services. Here, the smaller players should be given the same opportunity to provision in the opposite direction. This will tremendously increase competition because it will become possible for a smaller player to provision national or even international circuits for its customers. More competition means more choice, lower prices, and more innovation.

The reality, however, is that unless something is done to guarantee competition, the smaller telecommunications providers may be shut out. It is by no means a foregone conclusion that they will be given direct access to the network control modules required for provisioning and operations. This new innovation platform could just as easily be closed to outsiders. If this happens, smaller players will be reduced to being merely infrastructure providers, forced to operate under one-sided contracts that sell out their services for cheap to the dominant players.

A. The Townes Test

If indeed there emerges regulation of the new 5G architecture, and its associated markets, then it must present a “win-win” scenario for all players, large and small. We can suggest the following test for the viability of any proposed regulatory regime.

Any regulation must be such that it does not harm the dominant market players but at the same time either directly or indirectly or even unintentionally also does not allow harming the interests or the innovation capabilities of the smaller players or any unexpected new entrants into the telecommunications market.

In particular, the objective would be to ensure that 5G network control operations and the provisioning of infrastructure remain open to innovators. It should be possible to introduce numerous innovation models into the system. Smaller players should be guaranteed the flexibility to produce and resale services, even when they are not initiating, terminating or even running on their own infrastructure.

This type of regulatory arrangement will allow smaller carriers to provide the most advanced 5G services to their customers; even if they do not have the highest level architecture. But perhaps more important, it will allow start-ups to create auxiliary hybrid software services modules that improve the initial standardized 5G architecture. This flexibility allowing innovation will be particularly important for apps that will introduce cloud-based services or utilization of external data sets not found within the telecommunications infrastructure, including big data, location or other business-based information. This type of regulatory regime also will serve to accelerate the further deployment of Network Distributed Artificial Intelligence (NDAI) across all areas of both human and machine activity. Without this innovation, the future will not arrive as quickly as it could.

CONCLUSION

The new and emerging technologies of 5G present a radically new paradigm for telecommunications. It will change substantially the concept of a “telecommunications service” because networks will be “virtual.” But the full potential of 5G can be realized only if the potential for anti-competitive behavior by the dominant carriers is moderated by law and regulation.

Earlier cases of deregulation offer some guidance on how to resolve these emerging issues, but the historical record also shows a continual dynamic between the forces of competition and monopoly, between the free market, and regulation. If one force weakens, the other grows, and vice-versa.

In general, public policy favors the open approach, as seen in rules that govern the Internet. These “Net Neutrality” rules suggest that telecommunications providers who are involved in building infrastructure manage their operations in a way that does not foreclose competition and innovation. There can be no tolerance of monopoly, and in the future no tolerance of virtual monopoly.

This would suggest that as 5G is built, it likewise will be public policy to ensure that the controlling infrastructure for provisioning and management will remain open. But if history is any guide to the future, we can expect a “war” because the big players will seek to keep others away from direct access to the controls governing software defined networks and all of the new technologies of 5G.


1 In the European Community, roaming fees became the target of regulation under the “Single Digital Market” program. See e.g., European Commission, Statement, End of roaming charges in the EU: Joint statement by 3 EU institutions, Brussels, 14 June 2017. “The European Union is about bringing people together and making their lives easier. The end of roaming charges is a true European success story. From now on, citizens who travel within the EU will be able to call, text and connect on their mobile devices at the same price as they pay at home. Eliminating roaming charges is one of the greatest and most tangible successes of the EU.”

2 See e.g., European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee of the Regions: A Digital Single Market Strategy for Europe, Brussels, COM(2015) 192 final, June 5, 2015.

3 Reference is made to Clayton Christensen, “Disruptive Technologies Catching the Wave”, Harvard Business Review, January, 1995, p. 3.

4 See, e.g., Javan Erfanian and Brian Daly, Eds., Next Generation Mobile Networks Ltd (NGMN), 5G White Paper, Frankfurt, Germany, Feb. 17, 2015. http://www.ngmn.org

5 For example, in a recent (May, 2017) demonstration at the Indianapolis Speedway, the carrier Verizon and equipment supplier Ericsson demonstrated a 5G application in which the driver of a car was fitted with virtual reality goggles, and shown the road ahead through a 5G transported video feed. All of the windows of the car were completely covered with black plastic sheeting, making it impossible to see outside. There was so little latency that the driver was able to successfully navigate the raceway. If older technologies such as 4G had been used, the car would have crashed because of the delay in video signals.

6 See also: Ericsson, 5G Systems: Enabling the Transformation of Industry and Society, WHITE PAPER, Stockholm, January, 2017. (Mentioning autonomous vehicle control, emergency communication, factory cell automation, high-speed trains, large outdoor events, massive numbers of geographically dispersed devices, media on demand, remote surgery and examination, shopping malls, smart cities, stadiums, teleprotection in smart grid network, traffic jam, virtual and augmented reality as well as broadband to the home. Id. at 4.)

7 LMDS — Local Multipoint Distribution Service.

8 See, e.g., E.E. Altshuler and R.A. Marr, A comparison of experimental and theoretical values of atmospheric absorption at the longer millimeter wavelengths, IEEE Transactions on Antennas and Propagation, 36:1471, 1988.

9 A graphic showing the complex frequency allocation map of the United States is available. See, e.g., United States Department of Commerce, United States Radio Spectrum Frequency Allocations Chart as of 2016, available at https://www.ntia.doc.gov/files/ntia/publications/january_2016_spectrum_wall_chart.pdf

10 These small “mini”-cells also are called “Femto Cells,” “Pico Cells,” and “Micro Cells.” See, e.g., Ciena Corporation, “Small Cell Technology, Big Business Opportunity,” WHITE PAPER, New York, 2015.

11 To picture this arrangement, one can think of a circle as representing a single antenna broadcasting 360° in all directions. In order to visualize MIMO, think first of a pentagon shape (5-sided), an octagon (8-sided) or dodecagon (12-sided). With MIMO, a Pentadecagon (15-sided) polygon might be more realistic. Here, each side of the 15-sided shape would represent a separate antenna broadcasting only in the direction of the face of the antenna.

12 A graphic showing the complex frequency allocation map of the United States is available. See, e.g., United States Department of Commerce, United States Radio Spectrum Frequency Allocations Chart as of 2016, available at https://www.ntia.doc.gov/files/ntia/publications/january_2016_spectrum_wall_chart.pdf

13 If this were so, it likely would significantly decrease the value of licensed frequencies. On the other hand, since this jumping is designed to take place only when spectrum is not being used, a counter-argument would be that is would make no difference, and consequently, there should be no effect on the value of licensed 5G spectrum.

14 See, e.g., Qualcomm, 5G — Vision for the next generation of connectivity, WHITE PAPER, March 2015. “Through its common single core network, 5G will support 4G and Wi-Fi access, as well as simultaneous 5G, 4G, and Wi-Fi connectivity with multimode devices enabling seamless introduction of 5G services, and protecting operators’ investments.” (emphasis added) Id. at 15.

15 Example: Electricity meters.

16 See, e.g., Robert Mullins and Michael Taynnan Barros, Eds., Cognitive Network Management for 5G: The path towards the development and deployment of cognitive networking, 5GPPP Network Management & Quality of Service Working Group, March 9, 2017; Ioannis Giannoulakis, et al., Enabling Technologies and Benefits of Multi-Tenant Multi-Service 5G Small Cells, WORKING PAPER, Project SESAME, European Union funded 5G-PPP project, n.d.; see also Redana Simone (Nokia Bell Labs) and Kaloxylos Alexandros (Huawei Technologies Dusseldorf GmBH), View on 5G Architecture, WHITE PAPER, 5G-PPP Architecture Working Group, Ver. 01, July, 2016.

17 Open source software is one of the technologies responsible for the success (rapid penetration and growth) of the Internet. There is a theory that explains why open source approaches and self-organizing systems are a better match for the technology world. See, e.g., Eric Steven Raymond, THE CATHEDRAL & THE BAZAAR: MUSINGS ON LINUX AND OPEN SOURCE BY AN ACCIDENTAL REVOLUTIONARY, O’Reilly Media, Inc., 2001.

18 N. C. Kingsbury, Vice President, American Telephone and Telegraphy Company, LETTER TO THE ATTORNEY GENERAL, (Dec. 19, 1913) (Available at http://vcxc.org/documents/KC1.pdf)

19 For a history of AT&T’s divestitures, See, e.g., John Pinheiro, AT&T Divestiture & the Telecommunications Market, BERKELEY TECH. L.J. 303 (1987) (Available at http://scholarship.law.berkeley.edu/btlj/vol2/iss2/5)

20 “Fixed” here means not mobile or wireless, although at this time in history, there were no radio telephones.

21 Example: GTE — General Telephone & Electric Corporation (1955–1982) (eventually purchased by Verizon).

22 Equipment from any other manufacturer could not be interconnected to the network.

23 Hush-A-Phone Corp. v. United States, 238 F.2d 266; 99 U.S. App. D.C. 190; 1956 U.S. App. LEXIS 4023

24 See e.g., In the Matter of Use of the Carterfone Device, 13 F.C.C.2d 420 (1968), 13 Rad. Reg. 2d (P & F) 597, June 26, 1968. “We agree with and adopt the examiner’s findings that the Carterfone fills a needs and that it does not adversely affect the telephone system. . . . [W]e hold, . . . that application of the tariff to bar the Carterfone in the future would be unreasonable and unduly discriminatory.” Id. at 423.

25 These two cases are D.C. Cir 1978 and 1977.

26 U.S. v. AT&T, D.C. Cir 1984.

27 Many multinational enterprises began constructing their own internal long distance companies linking together their various sites.

28 Voice mail, security services, long distances, possible manufacturing of equipment.

29 The long title was: An Act to promote competition and reduce regulation in order to secure lower prices and higher quality services for telecommunications consumers and encourage the rapid deployment of new telecommunications technologies. Enacted by the 104th United States Congress. It became effective on February 8, 1996. Citation: 110 Stat. 56, P.L. 104-104. It amended the Communications Act of 1934.


“Conséquences de la téléphonie mobile de cinquième génération sur la télé-géographie

La nouvelle architecture 5G de la téléphonie mobile promet de révolutionner la manière dont le monde communique. La 5G rendra obsolète plusieurs méthodologies traditionnelles utilisées pour les études de télé-géographie et offrira de nouveaux vecteurs pour la recherche tant théorique qu’appliquée.

[Get the original version in French here.]

Source: Benjamin H. Dickens, Jr, Esq.  

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